Meta's (META) stock is finally shaking off a long stay in the penalty box, at least until the company reports earnings in a few weeks and serves up an eye-popping number for AI related capex spending.
Quick insight: Meta's stock is on track to close above its 200-day moving average for three consecutive days, its longest stretch since February, according to Yahoo Finance AlphaSpace data.
Meta shares have climbed 23% off their late-June lows versus a 3% advance for the S&P 500 (^GSPC). The rally has been "driven by improved sentiment around Meta's AI strategy, the launch of external AI monetization, and signs of an AI product cycle," JPMorgan analyst Doug Anmuth wrote in a new note.
Shares are roughly flat year to date, making them the third-worst-performing member of the "Magnificent Seven," behind the double-digit percentage drops for Microsoft (MSFT) and Tesla (TSLA).
A reminder: Investors betting on Meta ahead of its second quarter earnings report in a few weeks have short memories. The stock was drilled in late April in the wake of first quarter earnings, and then continued to trend down until the late-June lows.
The core problem was capital expenditure guidance that was nothing short of jaw-dropping.
Meta raised its full-year 2026 capex forecast to a range of $64 billion to $72 billion, up from a prior range of $60 billion to $65 billion. CEO Mark Zuckerberg essentially told investors that the AI infrastructure spending is not slowing down; it is accelerating. Free cash flow took a serious hit as a result, dropping to $10.3 billion from $12.5 billion in the same quarter a year ago. This is the number that makes institutional investors genuinely nervous because free cash flow is ultimately what funds buybacks, dividends, and the kind of financial flexibility that gives a company options when the economic environment gets difficult.
"To become more positive [on the stock], we look for increasing signs of Meta using Muse Spark 1.1 and future models internally, greater developer and enterprise adoption, and potential LLM share shift," Anmuth explained.
"2027 capex could certainly move higher, but that would be better received w/improving monetization," he added. "A rising share price is also likely to renew discussions around a potential equity raise on the heels of Google's in early June, but that could also be better received w/Meta on the offensive."
The bottom line: At this point, Meta is a "show me" story — as in, show me how increased capex spending on AI is driving increased monetization. Trust the rally at your own risk.